Cross-posted from The New Daily:
It’s not surprising that a Senate report on housing affordability chaired by a former property developer gives a free pass to the property industry.
Liberal MP and committee chair Jason Falinski’s view that developers should be given all the housing supply they want may well have been written by the Housing Industry Association (HIA).
Most telling is a dissenting report by Labor committee members, critiquing the unobjective nature of the findings and its selective quoting.
The report, which is the product of little more than six months of deliberation, tinkers round the edges rather than tackling the fundamental problem – that housing has turned into a financial asset class.
It claims negative gearing and the capital gains tax discount have had a negligible impact on housing prices, despite years of evidence to the contrary, including the rise in land and housing prices that followed the 1999 halving of the CGT.
Falinski instead preferred to focus on scrapping checks and balances in planning regulations.
We do, however, support the inquiry’s recommendation for replacing stamp duty with land tax.
Prosper Australia has reams of research in this area, which Treasury would find valuable if it follows the report’s recommendation to analyse the transition costs.
This work incentivises asset-rich, income poor pensioners and recent buyers to switch towards land taxes for the good of society.
But, surprisingly, the inquiry report requests that any land tax transition grants to the states be repaid to the federal government, ignoring the significant efficiency gains such taxes will deliver in growing the pie.
However, any transition must not result in lower overall taxes paid by the property sector – otherwise housing affordability will not improve.
The fallacy that taxes make up close to half the cost of a home was also repeated in this inquiry. We recently analysed this claim and found that such costs account for just 19.4% of housing costs, not half.
Furthermore, these calculations don’t take into account the fact that land taxes work to suppress the price of land, improving housing affordability.
Clearly, some housing related taxes are good for affordability. But you don’t hear that argument in this report. Instead, the narrative is pushed that property taxes are passed on to buyers through higher prices.
That argument falsely inflates even further the incredible market power of the property sector, which will only be enhanced if oversights in the planning process are removed.
Improving data on land supply is a key priority, with the nation’s most complete data set provided by Queensland. NSW might as well be flying blind. Improved data will allow a more objective sense of what is going on with land banking, particularly after rezoning.
Have a look for yourself – drive through your local master planned community to see how many stages have been released, over what timeframe and how much remains.
It often takes decades at ever higher prices. But yet land banking practices such as this were papered over in the report.
Land supply data needs to detail the capacity remaining from previous rezonings. Queensland provides publicly available data to show that 16.6 years of supply is available, with Victoria at 18 years.
These are generally seen as sufficient housing supplies to allow for affordable outcomes for buyers, but this data was not referenced in the report. Nor was the influence of Air BnB on the rental market.
Another subtlety that emanates from Falinski’s findings is that housing affordability should come second to housing accessibility.
A recommendation that buyers be allowed to access superannuation will likely supercharge property prices, helping only the very first movers.
Meanwhile, the rest of the market will be burdened with even further mortgage debt.
Interestingly, the Coalition pushed for super deposits to be used as collateral, instead of as a deposit.
This sounds attractive, but will again add fuel to the fire.
Scott Morrison likes to boast about using a scalpel rather than a chainsaw when it comes to housing policy.
This rhetoric is repeated throughout the report, but with Australians having experienced a 20-year housing crisis, and little undertaken to tackle housing as an investment class, the pressure on social housing and crisis accommodation will only continue to grow.